IRS Conducts Nationwide Sweep to Crack Down on Identity Theft and Tax Refund Fraud
The Internal Revenue Service has stepped up its efforts this tax season to combat identity thieves who steal taxpayers’ tax refunds, participating in a nationwide sweep that nabbed 389 identity theft suspects last month alone.
The massive national sweep led to 734 enforcement actions in January, including indictments, informations, complaints and arrests across 32 states and Puerto Rico involving 215 cities and surrounding areas. That effort comes on top of a growing identity theft effort that led to 2,400 other enforcement actions against identity thieves during fiscal year 2012.
The January crackdown was a joint effort with the Justice Department and local U.S. Attorneys’ offices as the IRS opened the 2013 tax season. The IRS Criminal Investigation division expanded its efforts in January, pushing the total number of identity theft investigations to more than 1,460 since the start of the federal 2012 fiscal year on Oct. 1, 2011.
IRS Acting Commissioner Steven T. Miller called the aggressive enforcement effort against refund fraud caused by identity theft “one of the biggest challenges facing the IRS today.”
“We’re doing a much better job on all fronts, but we still have much work to do,” he said on a conference call with reporters Thursday. “Working with other federal and state agencies, we at the IRS continue to increase the pressure on identity thieves.”
“We opened approximately 900 identity theft investigations in fiscal year 2012, which was triple the number we did in 2011,” Miller said. “In the first four months of the current fiscal year, 2013, we’ve already opened more than 500 criminal investigations. Total enforcement actions against identity thieves are also rapidly increasing. These include all milestones on the way to conviction, such as indictments, arrests and search warrants.”
In fiscal year 2012, enforcement actions totaled 2,400 against 1,310 suspects, he noted. Four months into the current fiscal year, 2013, enforcement actions already total 1,703 against 907 suspects.
“When these individuals go to jail, they’re spending an average of four years in custody,” Miller added. “We’ve seen sentences as long as 262 months. That’s more than 20 years.”
Miller noted that the IRS has dramatically increased the amount of time its special agents spend on the identity theft issue, working a total of more than half a million hours in 2012, more than double the amount of time in 2011. “These numbers show the IRS is very serious about pursuing identity thieves and protecting the taxpaying public,” he said. “We’ve taken these aggressive actions because we recognize how serious a problem identity theft is for taxpayers and for the tax system. With the tax-filing season now underway, we want to be clear that there is a heavy price to pay for committing refund fraud and identity theft. For anybody who may be thinking about getting involved in a refund fraud scheme, our message is clear: the IRS and its enforcement partners at the federal and state level are going after the perpetrators of these crimes and people are going to jail for a long time as a result.”
In addition to the nationwide sweep, at the same time the IRS launched a special compliance effort in the same time period involving money service businesses, such as check-cashing operations. “IRS investigators and auditors visited 197 businesses to help make sure that they are not assisting identity theft or refund fraud when they cash checks,” Miller said. “These visits took place in 17 areas that we identified as high-risk areas. Those include Tampa, Miami, New York, Philadelphia, Chicago and Los Angeles.”
Miller noted that the enforcement work was only part of a comprehensive identity theft strategy that the IRS has been pursuing to protect taxpayers. The IRS is also working to prevent fraudsters from receiving the refunds in the first place. In addition, the agency is devoting more attention to how it treats identity theft victims whose tax refunds get caught up in the system and how fast it can get innocent people their refunds.
In terms of preventing refunds from being paid to fraudsters, Miller noted that the IRS has improved its efforts at blocking fraudulent refund claims before they are processed. “We strive to screen out false returns at the earliest possible stage and we’re getting results,” he said. “In fiscal 2012, we prevented the issuance of more than $20 billion in refunds that were fraudulent, up from $14 billion the year before,” he said. “We stopped, before any refund, 5 million suspicious returns this past year, and for the 2013 tax season we’re making dramatic improvements so that we can do an even better job of stopping identity thieves in their tracks.”
The IRS has been issuing more identity protection personal identification numbers to more taxpayers who have been victimized by identity theft. “The IP PIN is a unique identifier that shows that a particular taxpayer is the rightful filer of the return,” said Miller. “This allows identity theft victims to avoid delays when they file future returns.”
In 2012 the IRS issued 250,000 IP PINs, and for this filing season in 2013 the IRS has issued 770,000 IP PINs.
“The IRS is also working hard to get better at helping victims of identity theft,” Miller added. “We now have more than 3,000 employees working on identity theft-related cases, more than double the number in late 2011.”
The IRS has also trained 35,000 employees who work with taxpayers in identity theft situations, he noted. “We’ve also improved our processes to speed these cases, but I’ll tell you that we still are challenged by our inventory, and folks are waiting longer than they should expect to,” Miller acknowledged. “This is going to improve over the next year so that we hope an identity theft case should be resolved in far less time, rather than today’s average, but we know that we have much work to do. To taxpayers victimized by identity theft, I have a message. I want you to know that we understand your frustration and we’re working hard to get your cases resolved as quickly as we can. We know we have more work to do, and it’s my commitment that we’ll do everything we can to help victims resolve their cases. But I also want the victims to know that we’re committed to pursuing the identity thieves and protecting all taxpayers. The enforcement actions announced today reflect a much larger commitment by the IRS to pursue those engaging in this crime.”
Miller was asked about whether the IRS’s identity theft filters would lead again to the long tax refund delays that many taxpayers experienced last tax season (see IRS Warns of Tax Refund Delays).
“There were some glitches in early filing season last year where we did hold up more returns than we had intended to hold up,” Miller admitted. “We got those fixed pretty quickly, and overall I think refunds were going out very well, and over the course of the year we did very well in getting refunds out on a timely basis. It’s my hope and our intent not to have that happen again. But I will say that obviously our filters are going to be in place and they are likely to hold up some refunds. So far the vast majority of those refunds prove out to be fraudulent.”
He noted that some of the techniques that the IRS is trying this filing season may prove to be helpful, such as attempting to authenticate the identity of the filer at the time of filing in order to advance the time when a decision is made as to whether or not a refund should be issued. “The more barriers we put up, the more likely it is that criminals will turn elsewhere,” he said.
The IRS reported that the identity theft effort—which intensified in January as the 2013 filing season opened—involved 734 enforcement actions related to identity theft and refund fraud. The effort led to actions taking place throughout the country involving 389 individuals. The effort included 109 arrests, 189 indictments, informations and complaints, as well as 47 search warrants.
In addition to the criminal actions, IRS auditors and criminal investigators conducted a special compliance effort starting on Jan. 28 to visit 197 money service businesses to help make sure these businesses are not assisting identity theft or refund fraud when they cash checks. The compliance visits occurred in 17 high-risk places identified by the IRS covering areas in and surrounding New York, Philadelphia, Atlanta, Tampa, Miami, Chicago, Houston, Phoenix, Los Angeles, San Diego, El Paso, Tucson, Birmingham, Detroit, San Francisco, Oakland and San Jose.
A map of the locations and additional details on the January enforcement actions and compliance visits are available on a special Identity Theft Schemes page on IRS.gov. More information on enforcement actions can be found on a DOJ Tax Division page.
The identity theft push over the last several weeks reflects a wider effort underway at the IRS. The number of IRS criminal investigations into identity theft issues more than tripled in fiscal year 2012. The IRS started 276 investigations in fiscal year 2011, a number that jumped to 898 in fiscal year 2012. So far in fiscal year 2013, there have been more than 560 criminal identity theft investigations opened.
Total enforcement actions continue to rapidly increase against identity thieves. This category covers actions ranging from indictments and arrests to search warrants. In fiscal year 2012, enforcement actions totaled 2,400 against 1,310 suspects. After just four months in fiscal 2013, enforcement actions totaled 1,703 against 907 suspects.
Sentencings of convicted identity thieves continue to increase. There were 80 sentencings in fiscal year 2011, which increased to 223 in fiscal year 2012.
Jail time is increasing for identity thieves. The average sentence in fiscal year 2012 was four years or 48 months—a four-month increase from the average in fiscal year 2011. So far this fiscal year, sentences have ranged from 4 to 300 months.
In addition to the national “sweeps” effort announced today, IRS work on identity theft and refund fraud continues to grow. For the 2013 filing season, the IRS has expanded these efforts to better protect taxpayers and help victims.
To stop identity thieves up front, the IRS has made a significant increase for the 2013 tax season in the number and quality of identity theft screening filters that spot fraudulent tax returns before refunds are issued. The IRS has dozens of identity theft screens now in place to protect tax refunds.
These efforts helped the IRS in 2012 protect $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.
By late 2012, the IRS assigned more than 3,000 IRS employees — over double from 2011 — to work on identity theft-related issues. IRS employees are working to prevent refund fraud, investigate identity theft-related crimes and help taxpayers who have been victimized by identity thieves. In addition, the IRS has trained 35,000 employees who work with taxpayers to recognize identity theft indicators and help people victimized by identity theft.
“We are strengthening our processing systems to watch for identity theft and detect refund fraud before it occurs,” Miller said. “And we continue to put more resources on helping people who are victims of identity theft and resolve these complex cases as quickly as possible.”
Taxpayers can encounter identity theft involving their tax returns in several ways, the IRS noted. One instance is where identity thieves try filing fraudulent refund claims using another person’s identifying information, which has been stolen. Innocent taxpayers are victimized because their refunds are delayed.
To help taxpayers, the IRS has a special section on IRS.gov dedicated to identity theft issues, including YouTube videos, tips for taxpayers and a special guide to assistance. For victims, the information includes how to contact the IRS Identity Protection Specialized Unit. For other taxpayers, there are tips on how taxpayers can protect themselves against identity theft.
If a taxpayer receives a notice from the IRS indicating identity theft, they should follow the instructions in that notice. A taxpayer who believes they are at risk of identity theft due to lost or stolen personal information should contact the IRS immediately so the agency can take action to secure their tax account. The taxpayer should contact the IRS Identity Protection Specialized Unit at (800) 908-4490. The taxpayer will be asked to complete the IRS Identity Theft Affidavit, Form 14039, and follow the instructions on the back of the form based on their situation.
Taxpayers looking for additional information can consult the special identity protection page on IRS.gov.
In fiscal year 2012, the IRS initiated approximately 900 identity theft related criminal investigations, tripling the number of investigations initiated in FY 2011. Direct investigative time applied to identity theft related investigations increased by 129 percent over that same period. Prosecution recommendations, indictments, and those convicted and sentenced for identity theft violations have increased dramatically since fiscal year 2010. Sentences handed down for convictions relating to identity theft have been significant, ranging from four months to 300 months.
The IRS noted that it continues to seek out and identify additional tools and methods to combat the proliferation of tax-related identity theft.
The IRS established an Identity Theft Clearinghouse, a specialized unit within Criminal Investigation dedicated solely to processing and tracking identity theft leads. The ITC’s primary responsibility is to develop cases and refer identity theft schemes to CI field offices. In addition, ITC provides coordination and administrative and investigative support to ongoing criminal investigations involving identity theft.
Teaming up to Combat Identity Theft
Working to assist state and local law enforcement agencies in their efforts to fight identity theft-related refund fraud, CI developed the Identity Theft Victim Disclosure Waiver Process. The program provides for the disclosure of federal tax returns and return information associated with the accounts of known and suspected victims of identity theft with the express written consent of those victims. Prior to disclosing any tax information, victims are required to sign a waiver authorizing the release of information to the designated state or local law enforcement official pursuing the investigation. The program is currently operational in nine states: Florida, Alabama, California, Georgia, New Jersey, New York, Oklahoma, Pennsylvania and Texas. CI expects to expand this initiative to include other states and jurisdictions.
The IRS has also expanded the scope of chargeable criminal violations to better combat identity theft related crimes. Additional charges include forging endorsements on Treasury checks; theft of public money; fraud in connection with access devices; mail fraud; and wire fraud.
In collaboration with Department of Justice’s tax division, Directive 144, Stolen Identity Refund Fraud, was issued, providing federal law enforcement officials with the ability to timely address a subset of identity theft cases. This directive specifically focuses on identity theft in the context of fraudulent tax refunds and provides for a streamlined investigation and prosecution process.
The IRS noted that its Criminal Investigation division participates in the Department of Justice’s Identity Theft Interagency Working Group. IRS’s CI division held an Identity Theft Summit on Jan. 17 in which 14 partner law enforcement agencies collaborated with CI in an effort to address identity theft related investigative challenges and priorities. CI special agents throughout the country are active members on over 35 multi-agency law enforcement task forces and working groups. The combined law enforcement efforts include federal, state and local law enforcement.